With the holiday season in full swing, marketers are tirelessly seeking ways to convince you that their product is the perfect gift for everyone on your holiday list. Although the bearded man of the hour at this time of the year is, of course, Santa Claus, many sellers try to ensure a competitive advantage by invoking the spirit of another hirsute man: Uncle Sam. But if you're thinking about abandoning a red and green color scheme this year for red, white, and blue and plastering your products with "Made in the USA" or "American Made," some recent California litigation reminds us that sellers should be careful when they feel the patriotic spirit overtaking the holiday spirit.
As we have noted several times previously on this blog, " Made in the USA" claims are tricky animals that can come back and sneak up on you like a whack from the stick-bearing Krampus (the nasty European sidekick to Santa Claus best known for walloping children with bundles of birch branches). The Federal Trade Commission ("FTC") has been active in this area, bringing a number of cases over the years to enforce its standard that to be able to make an unqualified "Made in USA" or "Our products are American made" claim, without any limits or qualifications, a product must be "all or virtually all" made in the U.S., i.e., all significant parts that go into the product must be of U.S. origin and all processing must take place in the U.S. The FTC guidance in this area has made it clear, however, that truthful qualified "Made in USA" claims, such as "Made in USA of foreign and domestic parts" or "Assembled in USA of parts from China" are permitted.
Over the years, however, national manufacturers and retailers have also had to contend with the very strict standard laid out in the California "Made in USA" statute (Cal. Bus. & Prof. Code § 17533.7), which has caused consternation in a jurisdiction where a number of "Made in USA" class actions have been filed, including the law suit discussed in a blog post from earlier this year and others filed against AG Adriano Goldschmied, among others. The California law prohibits "the words 'Made in U.S.A.,' 'Made in America,' 'U.S.A.,' or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States," and does not address qualified claims at all. California courts that have examined the statute have interpreted the use of "any part thereof" and similar language in the statute and suggested that even the use in a product of insignificant parts, like a single screw sourced from overseas, would preclude use of an unqualified claim, but use of a qualified claim has not been addressed.
Last month, however, the U.S. District Court for the Southern District of California issued a decision denying a motion to dismiss the AG Adriano Goldschmied class action that may provide some clarity on how to resolve the apparent conflict between the federal and California standards. In that case, the defendants argued that the federal and California "Made in USA" standards were in contradiction and thus compliance was impossible, and therefore the federal standard preempted the California statute. The court denied the motion, finding that if a product is made in the U.S.A. with imported fabric and components, and the label accurately reflects that, then there is no falsity or misrepresentation. As the court made clear, the California law is not preempted because it is possible–though challenging–to comply with both standards.
While that part of the decision doesn't necessarily make marketers' lives any easier, the court did provide an early holiday gift by providing some clarity on the permissibility of qualified "Made in USA" claims under California law. The court noted that while California law has been silent on the subject of qualified "Made in USA" claims to date, under principles of common sense, California law does permit qualified "Made in the USA" claims:
The words "Made in U.S.A." or "U.S.A." do not make the label inherently misleading, and they must be read in context. If the purpose of the false advertising law is to protect consumers from fraud and deceit, it is difficult to see how that purpose is not served, or is affirmatively violated, by a label that accurately describes where a product and all its component parts are sourced and manufactured. Defendants' argument to the contrary, that section 17533.7 prohibits such labels, even when they are accurate and not misleading, strains the purpose of the statute, the FAL in general and common sense.
So, what does this mean? Well, if other California courts interpret the law like this court did, qualified "Made in USA" claims have now been placed more squarely on the "nice" list in the Southern District of California–a welcome holiday gift for sellers doing business in California–and "Assembled in USA of imported components" would more likely be a permissible marketing claim for that bike Santa delivered from the North Pole and you put together in your living room in Los Angeles.
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